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Baird sets up campaign donation panel

The former head of Sydney Water who was the victim of a smear campaign will lead an expert panel to look at ways of reforming political donation rules in NSW.

Premier Mike Baird said on Tuesday the independent expert panel would be led by "respected businesswoman and senior public servant" Kerry Schott to consider whether full public funding of election campaigns should be introduced in NSW.

The panel will also look at what the appropriate cap on election campaigns should be.

The measure is part of the government's response to the Independent Commission Against Corruption's (ICAC) probes into political donations in NSW.

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The corruption watchdog has heard allegations that illegal donations were funnelled back into the NSW Liberal Party.

"This is about the public's confidence in our democracy over the long term," Mr Baird told parliament during question time on Tuesday.

Mr Baird said the ICAC inquiries showed the current donation system in NSW was broken.

"We need to change the culture of hidden influence and misplaced expectations of access that appear to follow even modest political donations in this state," he said.

The ICAC has heard Dr Schott was the subject of a false and anonymous corruption complaint lodged by the brother of Eric Koelma, a former staffer for ex-NSW minister Chris Hartcher.

It has also heard that crooked former Labor MP Eddie Obeid demanded that a NSW minister "sack the bitch", referring to Dr Schott, when she began asking questions of Australian Water Holdings (AWH).

The three-member panel will also include former Labor deputy premier John Watkins and former Liberal shadow attorney-general Andrew Tink.

It will report back to the premier by December 31 with options for "long term" reform of political donations.

Baird's government will face a tight deadline to enact any reforms before the March election.

The panel will also look at whether penalties for breaching donations law were sufficient and whether tighter rules around disclosure should be introduced.

Meanwhile, the government has introduced legislation that ensures corporate donations are regulated in the same way as all other political donations.

Mr Baird says the proposal closes a loophole that arose out of a High Court ruling in 2013 in response to the O'Farrell government's donation reforms.

In 2012, parliament passed laws restricting political donations from corporations with the government saying the reforms stopped third-party groups from buying elections.

But last year, the High Court found the NSW laws invalid, after the peak union body, Unions NSW, launched a challenge as a test case on the concept of freedom of political expression.

Independent MP Alex Greenwich welcomed the reforms but said Dr Schott's new panel must consult closely with cross-benchers "to ensure proposed reforms do not disadvantage those who often hold the major parties to account".

But the Greens are unsure the reforms will have a meaningful impact on NSW politics in time for the March 2015 election.

"The panel lacks the diversity required to represent the range of valid interests in the future of the election funding system," Greens MP John Kaye said.

"It risks becoming nothing but an inside job that locks out new and emerging parties and strengthens the power of the existing duopoly.

"With a reporting date that is too late for this parliament to act, the next state election will largely happen under the old corruption-vulnerable rules."